Himachal has no option but to bite the financial bullet

Himachal has no option but to bite the financial bullet

E paperSubscriptionLogin OpinionHimachal has no option but to bite the financial bulletCM Sukhvinder Sukhu has shown the courage to depart from a tradition which has bankrupted the state, but must do more, feels Avay ShuklaCM Sukhvinder Singh Sukhu (photo: @SukhuSukhvinder/X)

Avay Shukla Published: 11 Jan 2025, 12:30 PM

Himachal is gradually slipping into a financial sink-hole. The state has run up a debt of Rs 85,000 crore, and salaries/pensions and debt servicing account for almost 60 per cent of its annual budget.

The Union government, for vindictive political reasons, is further nudging it into the hole by denying it almost Rs 9,000 crore of PDNA (post-disaster national assistance) funds, mounting legal challenges to a newly imposed water cess (expected to mobilise Rs 2,500 crore per annum) and doing nothing to ensure that the Shanan Hydel Project is reverted to the state on the expiry of the lease agreement with Punjab (Rs 700 crore per annum).

In this backdrop, it is commendable that the embattled chief minister, Mr Sukhu, is trying to reverse the years of profligacy and populism by abolishing subsidies on water and electricity to all consumers except BPL families, removing the myriad concessions availed by various categories of travellers on HRTC, shutting down redundant institutions (like schools with very low enrolment), raising user fees and imposing cesses.

The new measures to tax the proliferating homestays and B+Bs is also welcome, for these units are now thriving and do not need any more incentives or concessions. He has to bite the bullet, even though it will almost certainly lose him the next elections. But now that he has mustered up the courage to depart from a tradition which has bankrupted the state, he must do more.

First and foremost, he must cut down the number of government employees by at least 15-20 per cent. Himachal has the second highest employee-population ratio in the country, with 2,50,000 employees on a population base of 70 lakh: this is simply unsustainable.

The proposed cut would reduce expenditure by about Rs 5,000 crore per annum, with a corresponding reduction in pensions in the years to come. With the progressive digitisation of all modes of governance, many posts can be easily dispensed with, especially in the clerical and ministerial cadres in offices. He should also stop giving reemployment to retired bureaucrats on commissions, authorities, boards, and appoint serving officers to these posts instead. Do away with the dozen or so advisors who  cost crores every year in return for very bad advice, as recent PR disasters have shown!

Tourism has become a double-edged sword for the state, and the repeated seasonal tsunamis of tourists are ravaging the environment beyond tipping point. There is an urgent need to restrict their numbers and also to ensure that it provides the revenues to compensate for the environmental costs as also the infrastructure "development" the state is forced to undertake to cater to it — highways, sewage treatment plants, solid waste management, enhancing water supply and power, etc.

The chief minister should seriously consider imposing a tourist tax of 10 per cent on all hotels, guesthouses, homestays, B+Bs. More and more countries, besieged by a pandemic of 'revenge' over-tourism, have started doing so — Russia, most southern European and Mediterranean countries, Switzerland, the United Kingdom and Netherlands; southeast Asian nations have also started doing so, with Bali being a trail blazer.

Our neighbour Bhutan — the only country in the world with a net zero carbon status — has imposed a $100 per day tax on all foreigners (Rs 1,200 per day for Indians), termed the sustainable development fund.

Himachal receives 20 million (2 crore) tourists every year, according to the government's own figures. Assuming that 25 per cent of them would be staying with friends or relatives or pass under the tax radar, that leaves 15 million. Assuming two tourists to a room, and an average three-day stay, that works out to a demand for 22.50 million room nights; let us round that off to 22 million for calculation purposes.

Let us again assume that each room costs Rs 4,000 per day. That would yield a gross revenue of Rs 8,800 crore per annum, and a 10 per cent tax on that would yield about Rs 880 crore to the government. (As per my experience and information, the revenues may be higher because Rs 4,000 for a room is a base price and there are any number of hotels which charge twice or thrice that, especially during peak times when the tourist rush is at its maximum).

Tourism is a mature industry in the state and no longer needs to be mollycoddled by financial incentives and subsidies. What it needs is better infrastructure, improved connectivity, quality upgradation, planned development and better public facilities for tourists.

All this requires heavy expenditure by the government on a continuing basis (the chief minister has just announced that almost Rs 3,000 crore will be spent on developing tourist destinations, ropeways, helipads, etc).

The tourism sector must contribute to this in the form of taxes, and not expect the government to foot the entire bill. The government's own HP Tourism Development Corporation is in severe financial straits and unable to pay dues to its retired employees. In fact, the high court recently ordered it to shut down 18 of its loss-making hotels!

Such a tax — it could be named the sustainable tourism fund — would undoubtedly be resisted by the hospitality industry, long used to low taxes, incentives, evasions and dictating terms. It may also lead to a temporary decline in the numbers of tourists which, according to me, would be a blessing for the natural environment of the state.

But the positive side (apart from much-needed revenue for the state) is that it would force the state and all stakeholders to improve the quality of the product on offer, become more tourist-friendly rather than exploitative, and give a chance to the natural environment to recover.

The permanent residents of the state, who now live in an almost permanent state of siege the whole year, would benefit immensely from reduced costs of basic necessities, better traffic conditions, reduced pollution and garbage, and preservation of their natural, architectural and historical heritage, all of which are presently under threat.

The writing is on the wall in Goa, which has entered a declining phase thanks to its excessive and uncontrolled tourism of the past. Himachal can still avoid this and emulate its Himalayan kin Bhutan in how to promote sustainable tourism, and how to preserve its natural capital while still giving handsome dividends to visitors and the local economy.